Congress Should Kill the BAT Tax… and Keep It That Way

Congress is moving on to tax reform as the next big item on the agenda, presenting conservatives with a golden opportunity to deliver a historic policy victory that will benefit all Americans. There are plenty of good ideas for how to simplify the tax code, broaden the base, and lower the rates paid by all Americans, but one proposal is throwing a wrench in lawmakers’ plans: the Border Adjustment Tax (BAT). This controversial proposal would raise a 20 percent tax on all imported goods, making everything from food to electronics more expensive.

Ever since lawmakers first raised the idea of passing such a tax last summer, the bad news has continued to roll in. Some reports in particular forecast serious consequences for the retail industry, but a recent report in April by the R Street Institute and Texas Public Policy Foundation has estimated the likely impact of the Border Adjustment Tax on Texas insurance premiums. For the over 10 million U.S. Hispanics that call the Lone Star State their home, these increased costs will build up and pose significant barriers to opportunity.

“Applying a destination-based cash flow tax—better known as a “border-adjustment tax,” or BAT—to the import of reinsurance would have significant effects on the cost and availability of a range of insurance products,” the report explains. “This report projects that, for Texas consumers, the impact would be $3.39 billion in higher property-casualty insurance premiums over the next decade.”

When it comes to the BAT, the question is not whether it will affect us, but by how much. Texas will be especially hard hit due to the proposal’s estimated impact on insurance premiums, but negative consequences will apply to any state economy that relies extensively on international trade. For Latino families living in states like Michigan, who rely on imports for more than 25 percent of their state GDP, the impact will be among the worst in the nation. Making matters worse, these states already pay federal business income taxes, yet these taxes will be dwarfed by the new taxes owed under the BAT. In some states, the new taxes on imports may be two to four times the size of all federal business taxes currently collected in those states. For businesses struggling to hire workers in these states, the BAT will be a disaster.

The BAT tax is currently on the back burner, but the fight isn’t over yet. The BAT tax needs to go away, and stay away. In order to safeguard our financial future and avoid these disastrous costs for Latino families across the country, it’s vital that Congress instead pass tax reforms that lower the rate, broaden the base, and eliminate harmful loopholes and deductions.